Medical equipment makers call for more domestic production, tariffs
November 7, 2024

An alliance of medical manufacturers is advocating for tax incentives, tariffs, and enforcement of labor and environmental standards to encourage more U.S. medical equipment production amid concerns over supply chain disruption following recent hurricanes and continued competition with foreign trade partners.

The American Medical Manufacturers Association (AMMA) advocates for U.S. businesses that produce medical personal protective equipment (PPE) and the input materials needed to manufacture it.

Publicly launched in 2023, the organization supports a more robust domestic supply chain of essential medical equipment. Eric Axel, executive director of AMMA, told FreightWaves in a video call that the organization is made up of nearly 20 companies today – including several newer startups that launched in response to the pandemic.

“Some of our companies have been around much longer than the pandemic,” Axel said. “But there was certainly an identification of a problem that in this country we rely on, mostly, nonfriendly, adversarial countries that are not democracies for our critical medical supplies such as PPE. China is not an ally of the U.S., and we learned during the pandemic we rely on them. Not only do we rely on them for a lot of these things, but they can tell us no.”

Axel said that while the U.S. also gets products from friendlier nations like Malaysia and Thailand, these countries don’t hold manufacturers to the same standards as U.S.-based companies.

“These are not democratic countries,” he said. “These are not countries that have strong labor standards like we do [and] they don’t have strong environmental standards.”

He pointed out that Americans are starting to take notice of where goods are coming from and whether trade partners hold similar labor and environmental standards.

“As people assess the labor and environmental impact of these products, I think they also recognize that there’s a chance they’re buying stuff from forced labor [or] major polluters,” Axel said. “It might just be that these companies don’t have to be held to the standards that we’re held to in the U.S., but it doesn’t matter. If we live in the U.S., we want to keep our products to the same standard that we would hold them to if they were made on our shores.”

Then there’s the possibility of disruptions, which Axel said are more frequent now than a decade ago.

“Literally, once every few months we have a major supply chain disruption,” he said. “Whether it’s global conflicts, a weather-related item, a breakdown at a factory or pandemics, [disruptions happen often].”

He said weather-related emergencies like hurricanes and the occasional piracy incident used to be some of the only major disruptions. Now there’s way more volatility.

“We can go on and on, but I think there’s been this recognition that we can’t just rely wholly on foreign products for things that we just need,” Axel said.

Effects of hurricanes Helene and Milton

Axel said medical manufacturers have learned several lessons from Hurricane Helene and Hurricane Milton.

“We can call it a 100-year storm, but I think we’ve had a 100-year storm every year for the last five years,” Axel said. “There’s a clear recognition that we are always just one disruption away. You fill in the blank how it was caused. … We are just one major event away from a disruption, and I think you have to be prepared for that.”

While AMMA doesn’t have a strong position on requiring the government to stockpile massive quantities of supplies, Axel said there is value in having some level of reserves on hand. “I think that’s one thing that we showed [from the recent hurricanes], that the government has finally put together a stockpile,” Axel said. “There’s many issues with how they continue to manage the stockpile, but we do believe there should be a stockpile on hand and they can draw it down as they need.”

Axel added that relying on one or two major manufacturers for critical supplies is a weak spot. He referred to the national shortage of IV fluids caused by hurricane flooding at Baxter International’s North Cove facility in North Carolina.

“I don’t wish the Baxter people ill will,” Axel said. “I don’t have anything to say negative about their business model or their concentration of their manufacturing facility in North Carolina. But it’s just clear: If you keep everything in one place, or you only have one or two providers you can draw upon, it’s a problem. It’s just a fact of the matter [that] if anything goes wrong or they go offline for any period of time, it’s going to be very difficult for anybody to make up for that capacity.”

Then there’s the issue of transporting the needed supplies.

“If we’re waiting on container ships from China, it’s clearly not a good strategy for us,” Axel said. “Because people who are in disaster-inflicted areas can’t wait three weeks for that ship to arrive. They need it now, yesterday.”

 

Domestic production opportunities arise

While currently a threat to national security, reliance on foreign medical supplies and PPE also presents an opportunity to create jobs at home and boost the economy, Axel said.

Tom Allen, AMMA vice president and treasurer, would agree. He is a founder and culture-managing partner at Altor Safety, a New York-based respirator manufacturer launched in response to the pandemic.

At the time, Allen was working in oncology, where patients were 100% immunocompromised. After seeing COVID’s deadly impact on cancer patients due to a lack of PPE, Allen was inspired to form a mask manufacturing facility.

“We’ve had great success actually,” he said. “I know a lot of companies have started in response to COVID and there’s only a small fraction that are left. I attribute my [success] to two things. I didn’t market to the end user, I marketed to distributors. … Grangers has been a great partner of mine. They have tons of salespeople and millions of customers, so they were able to get the reach and I was able to fulfill that partnership with Grangers.”

Allen said Altor Safety also supplied the Transportation Security Administration (TSA) with almost 100 million masks to reopen flights in the U.S.

From the beginning, Allen sourced all of his materials from the U.S.
“I was not reliant on any freight, wait times, price gouging, you name it,” he said. “Everything was always sourced in the U.S., and now there’s legislation that actually supports what I already did before [then].”

Allen said AMMA and the emergence of more domestic manufacturers was important because there is strength in numbers.

“You can’t rely on just one company to be able to provide for the whole population,” Allen said. “If you put all of your eggs in one basket or one facility, if there’s any disruption, there’s a trickle-down effect.”

There are also challenges

As with most capital opportunities, there is risk in competing with foreign manufacturers of medical equipment.

Axel referenced a fellow board member at AMMA whose business, BD, is the only domestic supplier of needles and syringes left in the U.S.

“The Chinese have undercut the market for so long that they were big enough to be able to withstand the competition,” Axel said. “I believe last year we were down to five needles and syringe companies. We’re down to one domestically now.” Because President Joe Biden’s administration recognized this threat, Axel said there is now a 100% tariff on Chinese needles and syringes.

“A lot of the foreign competition tends to undercut our domestic manufacturers. They just can’t compete,” Axel said. “They can only weather the storm for so long.”

Medical gowns are another example, he said. They sell for about $1 from China. He said the Department of Defense – in accordance with the Inflation Reduction Act – has mandated gowns be bought domestically for up to $2.75.

Axel said poor work conditions, extended hours and unknown sourcing allow Chinese manufacturers to outproduce and outcompete domestic manufacturers.

“We have to take this threat seriously,” he said. “We can’t tell the Chinese government what to do, but we can certainly tell our government that we have to take this threat seriously.”

The solution, Axel said, is tax incentives for domestic manufacturers, increased tariffs on foreign medical supplies and enforcement of standards on goods that are coming in.“There’s tools in the toolbox that we can use to enforce trade policies and keep our companies on a level playing field as best we can,” Axel said. “We know they’re going to cheat, and I don’t want to paint a broad brush, but it’s just their strategy.”